How does basic income support entrepreneurship and self-employment?

The issues:

Society benefits from entrepreneurship, yet budding entrepreneurs and people considering self employment face many challenges in making their venture a success. These challenges include:

  • Accessing credit
  • A high exposure to risk with the possibility of losing everything, becoming bankrupt and being plunged into poverty if the venture fails
  • Establishing the business while making a living at the same time, and dealing with the insecurity of income and cash-flow problems during the early phase of the business
  • Recognising that the need to invest all their time in the venture may mean putting other aspects of their lives on hold. This can result in many potential entrepreneurs abandoning their ambitions and dreams because of their over-riding commitments to other peopl
  • If the venture does not work out as planned and there is no income coming in, the self-employed person is entitled to only means-tested social welfare allowances, usually after a lengthy and intrusive application process. (The state does not accept Pay Related Social Insurance contributions from the self-employed.) Thus, the self-employed person may become dependent on other people’s income
  • Pressure from the market and from investors means the self-employed person or entrepreneur feels obliged to choose between doing work that the market recognises as profitable and capable of providing a high financial rate of return or doing “unprofitable” work of social benefit that will not attract investment support
  • Pressure to keep the business “growing” at all times. Sustainability, as opposed to making a profit, is not often considered to be an acceptable outcome
  • Some self-employed people qualify for a back-to-work-enterprise allowance from the state, but this can involve high levels of red tape and bureaucracy and it is gradually withdrawn after a time.

How basic income can help:

  • Entrepreneurs benefit from the provision of a guaranteed ongoing basic income and associated cash flow. It is a boost to existing enterprises and a support for those starting out
  • Basic income makes accessing credit easier as it reduces the risk the entrepreneur presents to creditors
  • Basic income reduces entrepreneurs’ exposure to risk – as they won’t ‘lose everything’. Business wind-down does not equal personal disaster and the guaranteed basic income remains in the event of bankruptcy
  • The entrepreneur’s dependents are not completely reliant on the success or failure of the venture as they have their own basic income
  • A basic level of income security is available while the entrepreneur develops the necessary networks and markets to sustain the enterprise
  • A basic income increases the viability of business ideas that investors may not consider profitable or that don’t have the potential to provide a ‘living wage’
  • This in turn permits society to benefit from greater levels of social entrepreneurship, where people can do important work that doesn’t provide a living wage in the market
  • Basic income enables a ‘co-operative’ or ‘partnership’ approach to ventures by reducing collective (as well as individual) risk
  • Basic income enables better long-run planning in the enterprise because short-term, survival, pressures are reduced.

What a basic income will not do:

Basic income cannot remove all the risk from establishing a new venture – people will still need to invest their scarce time and scarce savings (or encourage other people to invest their savings) in the venture. But basic income will mean that the entrepreneur will at least not have to worry about putting bread on the table while the venture is at the early stages. Nor can basic income guarantee the success of the venture – this will still depend on the talent, effort and persistence of those involved. On its own, basic income will not change people’s perceptions of what constitutes worthwhile or useful work, though it will facilitate businesses that are socially useful but marginal in market terms.